LQDH ETF

We initially rated LQDH a 'Sell' due to its zero duration profile, making it less beneficial in a falling rate environment. LQD outperformed LQDH by 4% as expected as the Fed announced its intent to cut Fed Funds. LQD benefited from lower intermediate rates, confirming our initial thesis. With the yield curve shift largely behind us, we are upgrading LQDH to 'Hold', anticipating similar performance to LQD in a range-bound rate environment.

LQDH is an interest rate hedged investment-grade corporate bond index ETF managed by BlackRock. It provides investors with diversified exposure to investment-grade corporate bonds, and uses swaps to hedge its interest rate risk. It has significantly outperformed its peers since inception, and with lower risk and volatility.

iShares Interest Rate Hedged Corporate Bond ETF is a fixed income ETF that hedges against rising interest rates. LQDH isolates corporate credit spreads and gains when spreads tighten, but loses value when spreads widen. Investment grade corporate spreads are currently at historic lows, indicating a potential future widening and lower NAV for LQDH.

Bond funds that hedge interest rate risk have performed better than those that don't in recent years. The iShares Interest Rate Hedged Corporate Bond ETF is a cost-effective option for investors seeking interest rate hedged exposure to investment-grade corporate bonds. The LQDH ETF offers a unique blend of features, including investment-grade corporate bond exposure with interest rate hedging, setting it apart from similar ETFs.

The iShares Interest Rate Hedged Corporate Bond ETF tracks a diversified portfolio of U.S. dollar-denominated investment grade corporate bonds. The fund hedges out interest rate risk by owning the iShares iBoxx $ Investment Grade Corporate Bond ETF and a portfolio of interest rate swaps. The LQDH ETF has delivered strong returns in the past year, but investors should not expect the same level of returns going forward.

LQDH tracks a corporate bond portfolio of consumer and financial stocks primarily in a way where effective duration, i.e duration risk, is zero. This is good in terms of hedging rate volatility, but it focuses the question of whether to buy this ETF on the matter of corporate credit spreads. In general, when the economy isn't that great credit spreads should increase, but they aren't implying things are economically quite good.